37% federal supplemental above $1M
Also: 37% supplemental, 37% rate, 37 percent above $1M, mandatory 37%
The mandatory flat 37% federal withholding rate on supplemental wages above $1 million per employee per calendar year. Employers cannot elect a lower rate even if the employee's marginal bracket is below 37%.
Once supplemental wages exceed $1 million in a calendar year from a single employer, federal regulations require 37% withholding on the excess. This matches the top federal marginal rate. Unlike the 22% rate below the threshold, which is a default that employees can effectively raise through voluntary W-4 adjustments, the 37% rate is mandatory. The employer has no discretion.
Example: an executive with $950,000 of RSU vests through September receives another $400,000 vest in November. The first $50,000 of that November vest falls under the $1 million cap at 22%. The remaining $350,000 withholds at 37%, producing a combined $140,500 on the November vest.
Common mistake: treating the 37% as a ceiling on tax exposure. It doesn’t cover California (13.3%), New York City (13.5% combined), or the 0.9% Additional Medicare Tax. A New York resident at 37% federal plus 13.5% state/city plus NIIT on investment income frequently pays a 55% or higher effective rate on equity proceeds.
The 37% mandatory rate matters at year-end planning for executives, at grant-size negotiation, and at the decision to spread vesting across calendar years when possible.